KPMG | Measuring Circularity Circular Transitions Indicators Framework – Version 3.0

Jul 26, 2022 | General, Information Portal, Members news, News

Abandoning the linear economy model

Over the years, companies and consumers have produced and consumed without concern for the availability of raw materials and natural resources.

This has led to a global economy based on the linear model, where resources are extracted, processed, used and then disposed of, which has resulted in increased stress on natural ecosystems and widespread scarcity of resources, which are no longer sufficient to cope with the ever-increasing demand for goods and services.

According to the linear model, products at the end of their life cycle are considered waste and therefore no recovery, recycling or reuse processes are undertaken.

This model is no longer sustainable in a scenario characterised by the increase in world population, which more than doubled between 1960 (3 Bn) and 2017 (7.5 Bn), and in global wealth (around 10 times that of the 1960s), which has led to a substantial increase in per capita use, and the decrease in reserves of non-renewable natural resources due to ever-increasing consumption since the industrial revolution.

The risks for businesses

The irreversible scarcity of resources and the consequent increase and volatility of prices generate a significant risk for businesses, which see an increase in both raw material supply costs and supply risk, with the associated increase in revenue fluctuations due to greater volatility of prices and demand for goods and services.

The adoption of a circular economy model is a matter of urgency and underpins the pillars of sustainability. However, there are still many obstacles and a lack of KPIs to achieve and especially to monitor in order to achieve circularity.

A regenerative economic model

The circular economy is a regenerative economic model right from the design phase, designed to maintain the value of the resources, products, components and materials used, through a system of innovative business models that minimises the creation of waste and scrap and promotes their active recycling and reuse.

The aim of the circular economy is to keep products and materials in use at their highest value even as components or raw materials. In this way, nothing becomes waste and the intrinsic value of products and materials is maintained. This is achieved, for example, by sharing or product as a service.

By moving from a linear economy to a circular economy, we move from the extraction to the regeneration of raw materials. Instead of continuously degrading nature, natural capital is built up, for example through agricultural practices that allow nature to rebuild soils, increasing biodiversity and returning materials to the soil.

The coordinated transition to the circular economy model: a complex challenge
The environmental impact of a product’s life cycle is determined up to 80 per cent during the design phase.

The circular economy is an economic model that offers opportunities for companies in all sectors, but the transition to it is not easy. Companies must change their business models while governments must adopt appropriate policies to facilitate the transition.

This explains why it is complex to plan and set clear objectives for a coordinated transition.

Introduction of the CTI framework

The World Business Council for Sustainable Development (WBCSD) is the leading CEO-led global community of more than 200 of the world’s leading sustainable businesses, working collectively to accelerate the systemic transformations needed for a carbon-neutral future.

Since 2020, the WBCSD has promoted the Circular Transition Indicators (CTI) framework, which has been rapidly adopted by some 1800 organisations from 94 countries around the world.

Version 3.0 of the CTI framework is now available, the main new features of which are the indicator to quantify the impact of circular strategies on greenhouse gas (GHG) emissions, indicators to quantify life cycle extension, and sector guidelines and scenario analysis.

KPI analysis and monitoring

In order to understand their level of circularity and to be able to set monitorable targets with reliable performance indicators (KPIs), companies need a metrics system that can guide their decision-making process in integrating circularity into their strategy.

The objective of the CTI framework is to provide company-wide circularity metrics to guide the transition to a circular economy, encouraging companies to adopt innovative circular business models.

The CTI tool allows the required data to be structured and KPI results to be calculated automatically. It also allows contacting internal stakeholders or value chain partners to request data, avoiding confidentiality issues.

Circular economy and greenhouse gas reduction

Transforming the way goods and materials are produced and used according to the circular economy model would offer significant potential for reducing greenhouse gas emissions by 45 per cent.

A company, instead of continuing to operate according to a linear ‘take-make-waste’ economic approach, has the opportunity to ensure that the product retains as much value as possible and can move towards higher value retention strategies. For example, repairing a product, instead of recycling it, requires less processing, and preserves the value of the product more and also emits less CO2.

The CTI is a simple, comprehensive model, applicable in all industries and value chains, but flexible, complementary to existing sustainability efforts and suitable for any product, sector or technology.

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